The official "blog of bonanza" for Alfidi Capital. The CEO, Anthony J. Alfidi, publishes periodic commentary on anything and everything related to finance. This blog does NOT give personal financial advice or offer any capital market services. This blog DOES tell the truth about business.

Wednesday, April 29, 2009

The economy shrank at a worse-than-expected 6.1 percent pace at the start of this year as sharp cutbacks by businesses and the biggest drop in U.S. exports in 40 years overwhelmed a rebound in consumer spending.

Consumer spending's resurgence is very odd at a time when job losses are rising and workers in major sectors - financial services and automotive manufacturing - are facing pay cuts. Is the Commerce Department gaming stats on consumer spending to make them look rosier than reality? And why is the stock market still looking past the avalanche of bad news in this report?

I don't have the answers to those questions. I only have the answer to this question: What am I doing with my money in response?

I'm still shorting SPY, EFA, IWM, and VWO. Sooner or later (probably sooner) Mr. Market will take note of the bad news.

Tuesday, April 28, 2009

Consumers hoping that the worst of the recession is over may be setting themselves up for disappointment as the US economy continues to deteriorate, a panel of economists and financial experts said Tuesday.

Surging unemployment and the slow-moving impact of the government stimulus program will stall any real economic recovery until 2010 or even later, the panel said. Consumers fearful of losing their jobs are likely to continue to spend less while the housing and financial crises continue to unwind.

The recent rise in stocks and talk about green shoots in the markets are optimistic assumptions, as the world downturn "still has a way to run," Hugh Hendry, Chief Investment Officer at Eclectica, told CNBC Tuesday.

World gross domestic product looks overestimated, because global consumption has been based on debt, and this cannot continue, Hendry told "Squawk Box Europe."

So when do I get to go on Squawk Box Europe? They know where to reach me. I could have told them this months ago. In fact, I did.

Sunday, April 26, 2009

I'll take this opportunity on a day when U.S. markets are closed to recap my philosophy behind holding two different gold instruments in my Alpha-D Portfolio.

iSharesCOMEX Gold Trust owns physical gold stored in a vault in London. One share = one tenth of an ounce of gold. I own IAU because its price is directly correlated to the daily bullion spot price; i.e. it's real gold.

Market Vectors Gold Miners ETF owns shares of publicly traded gold mining companies. I own GDX for several reasons: in case the government confiscates gold bullion from private owners as it did in 1933 (the miners' gold reserves are in the ground and can't be so easily grabbed); because GDX's returns aren't perfectly correlated with the spot price of bullion (owning non-correlated assets is the key to a well-diversified portfolio); and because it pays a small dividend (gold bars don't kick off cash like mining stocks do).

Please do NOT take this as a recommendation. This is merely a summary of my personal rationale for owning some gold. I have a portion of my assets in gold but I would never put the majority of my money into any one type of investment. I personally believe that the U.S. will experience serious inflation in the near future, and I expect gold to rise along with inflation. I could always be wrong, of course.

Saturday, April 25, 2009

Thanks to my loyal readers, Alfidi Capital LLC has reached an important milestone. The combined page views for both the main website and this blog have now reached 5000 (exactly!) as of April 25, 2009. This helps validate my business model. I would of course like to market this firm more aggressively to get more viewers, but unfortunately I am engaged in a major project right now that takes up all of the time that I would otherwise have available for marketing. Let's keep those hits coming! :-)

Friday, April 24, 2009

China revealed on Friday that it had secretly raised its gold reserves by three-quarters since 2003, increasing its holdings to 1,054 tonnes - or a pot worth about US$30.9-billion - and confirming years of speculation it had been buying.

This confirms what I've suspected for a while. China has been "shaping the battlespace" in its undeclared economic contest with the Anglo-West by stockpiling an alternative store of value that competes with the U.S. dollar.

The article also reveals something that took me by surprise:

China is the world's largest gold producer and does not permit exports of gold ingots, only jewellery, leaving plentiful supplies for the domestic market.

I had always thought South Africa was the world's top gold producer. Not anymore! Now Asian producers have more pricing power at the start of the supply stream. This knocks another pillar out from under the Anglo-West's ability to dominate the world.

The article concludes with HouHuimin, vice general secretary of the China Gold Association, forecasting the end of U.S. dollar hegemony:

"The financial crisis means the U.S. dollar value is changing fast, and it may retreat from being the international reserve currency. If that happens, whoever holds gold will be at an advantage."

I reset my short calls on SPY and EFA today, expiring in a couple of months. I've also decided to bet in a different direction with my gold holdings. I've decided to sell puts on IAU and GDX (and maintain my long holdings of the ETFs) because I believe, at some point in the very near future, the price of gold will finally begin its inexorable move upward. I don't want to be forced out of my long positions in gold when that happens, so I'd rather risk the possibility that I'll be forced to buy a little more gold.

Why do I believe in gold? Here's one reason. China has recently shifted its purchases of Treasuries to the ultra-short end of the curve, which will eventually force the U.S. to roll over more of its debt in the short term than in the long term. This accelerates the date at which the U.S. will face a bond market dislocation, thus furthering Beijing's long-term strategy of financially weakening the U.S. China's moves out of long-term Treasuries are also consistent with this approach.

BTW, I also purchased more FXI (with covered calls) based on the continuing strength of the Chinese economy.

Sunday, April 19, 2009

This month was a slight disappointment for my Alpha-D Portfolio. I decided to buy back my short calls on SPY and EFA at losses last week when the share prices looked they would rise through the strike price. :-( Remember, I'm doing uncovered calls on these things because I believe the world economy has farther to fall, and I didn't want to be caught with uncovered in-the-money options after expiration. That's why I'm going to renew these bearish positions when the market opens tomorrow.

Saturday, April 11, 2009

President HuJintao said April 1 that China’s 4 trillion yuan stimulus plan was taking effect, after urban fixed-asset investment surged 26.5 percent in the first two months. China’s lending boom contrasts with the struggle in the U.S. to rid banks of illiquid assets and efforts by central banks from Switzerland to Japan to unfreeze credit.

Tuesday, April 07, 2009

U.S. local governments were assigned a negative outlook by Moody’s Investors Service, the first time the New York-based credit rating company gave such an assessment to the overall group of debt issuers.

I say "sort of" because my post was aimed at state government bonds, but the same principal applies here. Local governments will have just as hard of a time as states in paying off debt issues. Muni bonds whose interest payments don't come at least partly from revenue-generating development projects can't realistically be considered safe havens anymore. I am not going to open my wallet for munis anytime soon, and probably not for several years.

Monday, April 06, 2009

Regulators announced the tests two months ago as part of an effort to determine how much assistance big banks might need to continue lending if the economic downturn worsens. The government is wrestling with how to bolster the lenders without appearing to prop up banks that are beyond repair.

The regulators are overwhelmed because of personnel cuts (particularly heavy among their best, most experienced examiners that had worked banks that had engaged in sophisticated frauds).

William Black gets it and so do I. He elaborates on the likelihood that the stress tests are a mask for further fraudulent bailouts of bankers, both in the above interview and in his televised interview with Bill Moyers. Mr. Moyers' willingness to speak truth to power makes him a national treasure.

Relax, everybody. The non-stress tests are just another part of the scam the banking elite is running on the taxpaying public by way of their proxies in government. Nothing to see here. Move along. As for me, my last short of XLF's calls worked out fine, so I may be renewing that next month.

Sunday, April 05, 2009

Massive investment losses sustained by public pension funds are pressuring state lawmakers from New Mexico to New York to spend more taxpayer money to shore up their programs, boost the retirement age for newly hired government workers and seek more from employee paychecks.

The California Public Employees’ Retirement System poured $1.71 billion into Apollo Management LP last year, more than twice as much as it gave any other private- equity manager, betting that the firm could exploit the global credit crisis. So far, the bet is coming up snake eyes.

No way am I buying munis now! I want to see some California munis backed by revenue from real projects, preferably transit infrastructure or energy projects. I'll wait as long as I have to for those issues.

The U.S. unemployment rate jumped in March to the highest level since 1983 and service industries shrank at a faster pace, indicating the economy remains trapped in what’s likely to be the longest recession since the 1930s.

In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending.(snip)

But there’s a deeper and more disturbing similarity: elite business interests — financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

The Atlantic's only real rival for the title of most intellectual publication in America is Harper's (and it's just as old!), whose editor emeritus Lewis Lapham has always held a rather jaundiced view of his peers in the ruling elite. His florid prose is always a joy to read (excerpted from Money and Class in America, 1988):

By abdicating their authority and responsibility, the sovereign people also relinquish their courage. Like rich old women in Palm Beach or a committee of dithering lawyers, the American electorate listens to the wisdom of its public servants as if to voices of minor oracles. Politicians and Cabinet ministers appear in the role of of the omniscient butler who finds phrases of art with which to conceal the embarrassments of the young master’s profligacy and reduced circumstances.

People are pissed off about this financial crisis, and about this bailout, but they're not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d'état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.

The authors all recognize that neofeudalism is here. I've seen it coming too, probably since my days at Notre Dame when I first encountered the children of one wing (the hard-right, hypermoralistic, hypocritical Catholic wing) of our ruling class. I have spent my adult life aspiring to join the ranks of America's patricians only to find that, in the main, they won't have me among them. No matter. The turmoil now brewing will allow me and others like me to simply displace them with new wealth, like the Darwinian process that allows mutated species to survive ecological catastrophes.

There were numerous warning signs on our national road to economic annihilation. Many of my fellow Americans seem to have mistaken them for billboard advertisements. I read every sign up close, took notes, and marked their locations. I will wait patiently for the day when I will sign the deed on a San Francisco mansion. Quite a few will be vacated by people who couldn't be bothered to pay attention.

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Alfidi Capital is a private financial research firm.Alfidi Capital is not affiliated with any broker-dealer and does not manage money for clients.All information mentioned in this blog is derived from public sources.Alfidi Capital makes no representation as to the accuracy or completeness of this information.Alfidi Capital and its owner, Anthony J. Alfidi, may from time to time hold long or short positions (including options, warrants, rights, and other derivatives) in the securities mentioned in this blog.This blog is provided for informational, educational, and entertainment purposes only and does not constitute a recommendation or solicitation to execute a transaction in any investment product.Investors should consult with a properly licensed and registered investment professional before making any investment decision.The bottom line:Enjoy reading this blog, but the risk you take with investing is entirely your own.